Cory and Tisha have a total household gross monthly income of $7,000 and monthly debt repayment of $911, what is the maximum mortgage loan amount for which Cory and Tish could qualify? Monthly real estate tax and homeowner’s insurance together are estimated to be $170 per month. Use 4 percent as the current rate of interest and assume a 30-year, fixed rate mortgage.

1. Explain the 28 percent rule, and calculate the mortgage loan amount under the 28 percent rule.

2. Explain the 36 percent rule, and calculate the mortgage loan amount under the 36 percent rule.

3. What other information would be necessary or useful to help Cory and Tisha determine the appropriate loan amount?

Lasting Impressions (LI) Company is a medium-sized commercial printer of promotional advertising brochures, booklets, and other direct-mail pieces. The firm’s major clients are ad agencies based in New York and Chicago. The typical job is characterized by high quality and production runs of more than 50,000 units. LI has not been able to compete effectively with larger printers because of its existing older, inefficient presses. The firm is currently having problems meeting run length requirements as well as meeting quality standards in a cost-effective manner. The general manager has proposed the purchase of one of two large, six-color presses designed for long, high-quality runs. The purchase of a new press would enable LI to reduce its cost of labor and therefore the price to the client, putting the firm in a more competitive position. The key financial characteristics of the old press and of the two proposed presses are summarized in what follows. Old press Originally purchased 3 years ago at an installed cost of $400,000, it is being depreciated under MACRS using a 5-year recovery period. The old press has a remaining economic life of 5 years. It can be sold today to net $420,000 before taxes; if it is retained, it can be sold to net $150,000 before taxes at the end of 5 years. Press A This highly automated press can be purchased for $830,000 and will require $40,000 in installation costs. It will be depreciated under MACRS using a 5-year recovery period. At the end of the 5 years, the machine could be sold to net $400,000 before taxes. If this machine is acquired, it is anticipated that the current account changes shown in the following table would result. Integrative Case 5 Cash (+) $ 25,400 Accounts receivable (+) 120,000 Inventories (-) 20,000 Accounts payable (+) 35,000 Press B This press is not as sophisticated as press A. It costs $640,000 and requires $20,000 in installation costs. It will be depreciated under MACRS using a 5-year recovery period. At the end of 5 years, it can be sold to net $330,000 before taxes. Acquisition of this press will have no effect on the firm’s net working capital investment. The firm estimates that its earnings before depreciation, interest, and taxes withthe old press and with press A or press B for each of the 5 years would be as shown in the table at the top of the next page. The firm is subject to a 40% tax rate. The firm’s cost of capital, r, applicable to the proposed replacement is 14%. Earnings before Depreciation, Interest, and Taxes for Lasting Impressions Company’s Presses Year - Old press - Press A - Press B 1- $120,000 - $250,000 - $210,000 2 - 120,000 - 270,000 - 210,000 3 - 120,000 - 300,000 - 210,000 4 - 120,000 - 330,000 - 210,000 5 - 120,000 - 370,000 - 210,000

TO DO

a. For each of the two proposed replacement presses, determine:

(1) Initial investment.

(2) Operating cash inflows. (Note: Be sure to consider the depreciation in year 6.)

(3) Terminal cash flow. (Note: This is at the end of year 5.)

b. Using the data developed in part a, find and depict on a time line the relevant cash flow stream associated with each of the two proposed replacement presses, assuming that each is terminated at the end of 5 years.

c. Using the data developed in part b, apply each of the following decision techniques:

(1) Payback period. (Note: For year 5, use only the operating cash inflows—that is, exclude terminal cash flow—when making this calculation.)

(2) Net present value (NPV).

(3) Internal rate of return (IRR).

Suppose you have been hired as a financial consultant to Defense Electronics, Inc. (DEI), a large, publicly traded firm that is the market share leader in radar detection systems (RDSs). The company is looking at setting up a manufacturing plant overseas to produce a new line of RDSs. This will be a five-year project. The company bought some land three years ago for $7.2 million in anticipation of using it as a toxic dump site for waste chemicals, but it built a piping system to safely discard the chemicals instead. If the land were sold today, the net proceeds would be $7.69 million after taxes. In five years, the land will be worth $7.99 million after taxes. The company wants to build its new manufacturing plant on this land; the plant will cost $13.36 million to build. The following market data on DEI’s securities are current: Debt: 91,800 7.2 percent coupon bonds outstanding, 26 years to maturity, selling for 94.1 percent of par; the bonds have a $1,000 par value each and make semiannual payments. Common stock: 1,660,000 shares outstanding, selling for $94.90 per share; the beta is 1.29. Preferred stock: 78,000 shares of 6.4 percent preferred stock outstanding, selling for $92.90 per share. Market: 7.05 percent expected market risk premium; 4.9 percent risk-free rate. DEI’s tax rate is 24 percent. The project requires $870,000 in initial net working capital investment to get operational. a. Calculate the project’s Time 0 cash flow, taking into account all side effects. Assume that any NWC raised does not require floatation costs. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, e.g., 1,234,567.) b. The new RDS project is somewhat riskier than a typical project for DEI, primarily because the plant is being located overseas. Management has told you to use an adjustment factor of +3 percent to account for this increased riskiness. Calculate the appropriate discount rate to use when evaluating DEI’s project. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) c. The manufacturing plant has an eight-year tax life, and DEI uses straight-line depreciation. At the end of the project (i.e., the end of Year 5), the plant can be scrapped for $1.59 million. What is the aftertax salvage value of this manufacturing plant? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, e.g., 1,234,567.) d. The company will incur $2,390,000 in annual fixed costs. The plan is to manufacture 13,900 RDSs per year and sell them at $11,300 per machine; the variable production costs are $10,500 per RDS. What is the annual operating cash flow, OCF, from this project? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, e.g., 1,234,567.) e. Calculate the project's net present value. (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89) f. Calculate the project's internal rate of return. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

An Apple annual coupon bond has a coupon rate of 5.1%, face value of $1,000, and 4 years to maturity. If its yield to maturity is 5.1%, what is its Modified Duration? Answer in years, rounded to three decimal places.

What is the Profitability Index of a project that costs $39,000 today and is expected to generate annual cash inflows of $5,000 for the following 8 years. Assume the company's WACC is 9%. Round to two decimal places.

Your best friend wins the lottery and gives you a gift option.  You need to complete both problems to make your decision.

1. As one gift option, they offer to give you the interest only from a $1,000,000 investment with an interest rate of 8% that compounds annually.  How much interest do you receive in 5 years?

2. As another gift option, they offer to give you the interest only from $2,000,000 investment with an interest rate of 7% that compounds semi-annually.  How much interest do you receive in 2.5 years?

3. What is the future value of $13,000 at 10% compounded semi-annually over 10 years?

4. What is the future value of $13,000 at 10% interest compounded quarterly over 10 years?

#Question/ *Dividend policy relates to the management decision on how much of the company's earnings are to be paid out to shareholders as dividends vs retaining for reinvestment in new opportunities. in general, there are three schools of thought in regards to the relationship between dividend policy and stock value".

-Discuss the THREE (3) schools of thought highlighted in the above statement?

You are trying to calculate the WACC for two firms. Firm XiG is publicly traded and firm TanW is a private firm. You have collected all necessary information for your WACC calculation:

In terms of liabilities, XiG has account payables of $400Million and a bank loan of $200Million. XiG also has cash holding of $300Million. XiG is current trading at $520/share with 1 Million shares outstanding. XiG’s returns move one to one with the stock market returns.

XiG’s average tax rate is 30% and marginal tax rate of 35%. XiG is rated as Aa1 by Moody’s and similar Aa1 rating firms have cost of debt of 2%. Risk free rate is 1%, market risk premium is 5%.

TanW is in the same industry as XiG. After consulting with an industry expert, you are confident that TanW and XiG have roughly the same business risk. Currently, TanW has net debt to equity ratio of 2. TanW’s average tax rate is 30% and marginal tax rate of 35%. Its cost of debt is 3%.

Now you proceed to calculate the WACC for both firms.

What is the net debt, market value of equity and WACC for XiG?

#Question/ Average Team Bhd has the following market-value balance sheet. The stock currently sells for $30.00 a share and there are 1 million shares outstanding. The firm will either pay a $2.50 share dividend or repurchase a $2.5 million worth of stock. ignore taxes.

1- Compute the subsequent price per share, if the firm pays a dividend.

2- Compute the subsequent price per share, if the firm repurchases stock.

3- If the net income of the firm is $2 million a year, find the firms' earning per share if the firm pays a dividend.

4- Compute the earning per share if the firm repurchases stock.

5-Find the price-earnings ratio if the firm pays a dividend.

6-Compute the price-earnings ratio if the firm repurchases stock.

#Question

A) "Economists often refer to the stock market as an efficient market, By this they mean that the competition to find the misvalued stocks is intense, So, when new information comes out, investors rush to take advantage of it and therefore eliminate any profit opportunities."

#1A- Explain the term "Efficient market' and distinguish THREE (3) forms of the Efficient Market Hypotheses (EMH).

B) If the rate of return available on risk-free assets is 4% and you expect the rate of return of the market portfolio to be 14%.

#1B- What expected rate of return would you demand before you would be willing to invest in this mutual fund?

#2B- Is this fund attractive? Why?

#3B- How could you mix mutual fund with a risk-free position in Treasury bills to create a portfolio with the same managers but with a higher expected rate of return? what is the rate of the return of the portfolio?

St. Johns River Shipyards' welding machine is 15 years old, fully depreciated, and has no salvage value. However, even though it is old, it is still functional as originally designed and can be used for quite a while longer. The new welder will cost $80,000 and have an estimated life of 8 years with no salvage value. The new welder will be much more efficient, however, and this enhanced efficiency will increase earnings before depreciation from $26,000 to $52,000 per year. The new machine will be depreciated over its 5-year MACRS recovery period, so the applicable depreciation rates are 20.00%, 32.00%, 19.20%, 11.52%, 11.52%, and 5.76%. The applicable corporate tax rate is 40%, and the project cost of capital is 14%. What is the NPV of the project? Do not round intermediate calculations. Round your answer to the nearest cent.

Your company doesn't face any taxes and has $258 million in assets, currently financed entirely with equity. Equity is worth $8.8 per share, and book value of equity is equal to market value of equity. Also, let's assume that the firm's expected values for EBIT depend upon which state of the economy occurs this year, with the possible values of EBIT and their associated probabilities as shown below:

State Pessimistic Optimistic

Probability of State .25 .75

Expect EBIT in State $18 million $58 million

The firm is considering switching to a 20-percent debt capital structure, and has determined that they would have to pay a 9 percent yield on perpetual debt in either event. What will be the level of expected EPS if they switch to the proposed capital structure? (Round your intermediate calculations and final answer to 2 decimal places except calculation of number of shares which should be rounded to nearest whole number.)

The balance sheet and income statement shown below are for Pettijohn Inc. Note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 years, and the notes payable will be rolled over.

           Required:

1. What is the firm's current ratio?
2. What is the firm's quick ratio?
3. What are the firm’s days sales outstanding? Assume a 360-day year for this calculation.
4. What is the firm's total assets turnover?
5. What is the firm's inventory turnover ratio?
6. What is the firm's ROA?
7. What is the firm's ROE?
8. What is the firm's net profit margin?
1. Analyze the company performance (min 250 words).

Please note for each answer formula and calculations should be included.

#Question 1A

Sweet Coco Corporation (SCC) is contemplating the acquisition of Salty Pretzels (SP). The Value of the two companies as separate entities is $20 million and $10 million, respectively. SCC estimates that by combing the two companies, it will generate additional revenue of $1 million and reduce operating costs of $500,000 per year in perpetuity. SCC is willing to pay $20 million in cash for Salty Pretzels. Assuming the opportunity cost of capital is 8%.

1) What is the Gain of the merge?

2)what is the cost of the cash offer?

3)What is the net present value (NPV) of the acquisition under the cash offer?

#Question 2A

Suppose that instead of making a cash offer, Sweet Coco Corporation considers offering Salty Pretzels' shareholders a 50% holding in Sweet Coco Corporation.

1) What is the value of the stock in the merged company held by the original Salty Pretzels shareholders?

2)What is the cost of the stock alternative?

3)What is the merger's net present value (NPV) under the stock offer?

#Question 3A

Currently, you are working as a finance manager in Sweet Coco Corporation, Which strategy will you recommend to the board of directors? Justify your suggestion.